|For immediate release|
The Federal Reserve Board today announced its approval of the notice of Wachovia Corporation, Winston-Salem, North Carolina, to acquire Interstate/Johnson Lane, Inc., Charlotte, North Carolina, and thereby engage in underwriting and dealing, to a limited extent, in all types of debt and equity securities, and in certain other nonbanking activities.
Attached is the Board's Order relating to this action.
Wachovia Corporation ("Wachovia"), a bank holding company within the meaning of the Bank Holding Company Act ("BHC Act"), has requested the Board's approval under section 4(c)(8) of the BHC Act (12 U.S.C. §1843(c)(8)) and section 225.24 of the Board's Regulation Y (12 C.F.R. 225.24) to acquire Interstate/Johnson Lane, Inc. ("IJL"),1 and thereby acquire control of its subsidiaries, including Interstate/Johnson Lane Corporation ("Company"), all in Charlotte, North Carolina.2 Wachovia would thereby engage in the following nonbanking activities:
Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (64 Federal Register 4107 (1999)). The time for filing comments has expired, and the Board has considered the notice and all comments received in light of the factors set forth in section 4(c)(8) of the BHC Act.
Wachovia, with total consolidated assets of approximately $65.6 billion, is the 17th largest banking organization in the United States.3 Wachovia operates subsidiary banks with branches in North Carolina, South Carolina, Florida, Georgia, and Virginia and engages through other subsidiaries in a broad range of permissible nonbanking activities. IJL, with total consolidated assets of $652.3 million, engages directly and indirectly in a broad range of securities underwriting and dealing, securities brokerage, investment advisory, and other activities.4
Wachovia proposes to acquire IJL by merging IJL with and into Wachovia, with Wachovia as the surviving corporation. Wachovia anticipates merging its existing section 20 subsidiary, Wachovia Capital Markets, Inc., Winston-Salem, North Carolina ("WCMI"), with and into Company immediately on consummation of the merger between Wachovia and IJL, with Company surviving the merger.5 After consummation of the proposal, Company would be renamed Wachovia Securities, Inc. Company is, and after consummation of the proposal will continue to be, registered as a broker-dealer with the Securities and Exchange Commission ("SEC") under the Securities Exchange Act of 1934 (15 U.S.C. §78a et seq.), a member of the National Association of Securities Dealers, Inc. ("NASD"), and registered as a futures commission merchant with the Commodity Futures Trading Commission ("CFTC") under the Commodity Exchange Act (7 U.S.C. §2 et seq.). Accordingly, Company is, and will continue to be, subject to the record-keeping and reporting obligations, fiduciary standards, and other requirements of the Securities Exchange Act of 1934, the Commodity Exchange Act, the SEC, the CFTC, and the NASD.
Underwriting and Dealing in Bank-Ineligible Securities
Other Activities Approved by Regulation or Order
In considering the financial resources of the notificant, the Board has reviewed the capitalization of Wachovia and Company in accordance with the standards set forth in the Section 20 Orders and has found the capitalization of each to be consistent with approval. This determination is based on all the facts of record, including Wachovia's projections of the volume of the bank-ineligible underwriting and dealing activities of Company.
The Board also has reviewed the managerial resources of each of the entities involved in this proposal in light of examination reports and other supervisory information. In connection with the proposal, the Federal Reserve Bank of Richmond ("Reserve Bank") has reviewed the policies and procedures of Company to ensure compliance with this order and the Section 20 Orders, including Company's operational and managerial infrastructure, computer, audit, and accounting systems, and internal risk management procedures and controls. On the basis of the Reserve Bank's review and all other facts of record, including the commitments provided in this case and the proposed managerial and risk management systems of Company, the Board has concluded that financial and managerial considerations are consistent with approval of the notice.
In addition, the Board has carefully considered the competitive effects of the proposal. To the extent that IJL and its subsidiaries offer different types of products and services than Wachovia, the proposed acquisition would result in no loss of competition. In those markets where the product offerings of Wachovia's nonbanking subsidiaries overlap with the product offerings of IJL and its subsidiaries, such as securities brokerage, investment advisory activities, trust services, and insurance agency activities, there are numerous existing and potential competitors. Consummation of the proposal, therefore, would have a de minimis effect on competition in the market for these services, and the Board has concluded that the proposal would not have significantly adverse competitive effects in any relevant market.
The Board expects that consummation of the proposal would provide added convenience to the customers of Wachovia and IJL. Wachovia has indicated that consummation of the proposal would expand the range of products and services available to its customers and those of IJL. Wachovia also has stated that the proposal would assist Wachovia to diversify its operations and, accordingly, would make it less vulnerable to possible downturns in individual business lines. In addition, there are public benefits to be derived from permitting capital markets to operate so that bank holding companies can make potentially profitable investments in nonbanking companies and from permitting banking organizations to allocate their resources in the manner they consider to be most efficient when such investments and actions are consistent, as in this case, with the relevant considerations under the BHC Act. Moreover, under the framework established in this order and the Section 20 Orders, consummation of the proposal is not likely to result in any significantly adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices.
Based on all the facts of record, the Board has determined that performance of the proposed activities by Wachovia can reasonably be expected to produce public benefits that outweigh any potential adverse effects of the proposal. Accordingly, the Board has determined that the performance of the proposed activities by Wachovia is a proper incident to banking for purposes of section 4(c)(8) of the BHC Act.
The Board's determination also is subject to all the terms and conditions set forth in Regulation Y, including those in sections 225.7 and 225.25(c) (12 C.F.R. 225.7 and 225.25(c)), and to the Board's authority to require modification or termination of the activities of a bank holding company or any of its subsidiaries as the Board finds necessary to ensure compliance with, or to prevent evasion of, the provisions and purposes of the BHC Act and the Board's regulations and orders issued thereunder. The Board's decision is specifically conditioned on compliance with all the commitments made in connection with the notice, including the commitments discussed in this order and the conditions set forth in this order and the Board regulations and orders noted above. The commitments and conditions are deemed to be conditions imposed in writing by the Board in connection with its findings and decision, and, as such, may be enforced in proceedings under applicable law.
This proposal shall not be consummated later than three months after the effective date of this order, unless such period is extended for good cause by the Board or the Reserve Bank, acting pursuant to delegated authority.
By order of the Board of Governors,14 effective March 17, 1999.
(signed) Robert deV. Frierson
Robert deV. Frierson
1 Wachovia also has requested the Board's approval to hold and exercise an option to acquire up to 19.9 percent of IJL's outstanding voting shares, if certain events occur. The option would expire on consummation of the proposal described above.
2 IJL's other subsidiaries include Cap Trust Financial Advisors, LLC; IJL Capital Management, Inc.; and ISC Futures Corporation.
3 Asset and ranking data are as of September 30, 1998.
4 IJL currently engages in certain insurance activities and holds certain investments in real estate that are not permissible for bank holding companies. Wachovia has committed to conform, within two years of consummation of the proposal, all insurance activities of, and real estate investments held by, IJL and its subsidiaries to the requirements of section 4 of the BHC Act and the Board's regulations and interpretations thereunder. Wachovia also has committed not to engage in any new real estate investment or development activities during the two-year conformance period.
5 WCMI currently underwrites and deals in, to a limited extent, certain types of bank-ineligible securities. See Letter dated May 29, 1998, from Jennifer J. Johnson, Deputy Secretary of the Board, to John C. McLean, Jr.
6 See J.P. Morgan & Co. Inc., et al., 75 Federal Reserve Bulletin 192 (1989), aff'd sub nom. Securities Industry Ass'n v. Board of Governors of the Federal Reserve System, 900 F.2d 360 (D.C. Cir. 1990); Citicorp, 73 Federal Reserve Bulletin 473 (1987), aff'd sub nom. Securities Industry Ass'n v. Board of Governors of the Federal Reserve System, 839 F.2d 47 (2d Cir.), cert. denied, 486 U.S. 1059 (1988), as modified by Review of Restrictions on Director, Officer and Employee Interlocks, Cross-Marketing Activities, and the Purchase and Sale of Financial Assets Between a Section 20 Subsidiary and an Affiliated Bank or Thrift, 61 Federal Register 57,679 (1996); Amendments to Restrictions in the Board's Section 20 Orders, 62 Federal Register 45,295 (1997); and Clarification to the Board's Section 20 Orders, 63 Federal Register 14,803 (1998) (collectively, "Section 20 Orders").
7 Compliance with the revenue limitation shall be calculated in accordance with the method stated in the Section 20 Orders, as modified by the Order Approving Modifications to the Section 20 Orders, 75 Federal Reserve Bulletin 751 (1989); 10 Percent Revenue Limit on Bank-Ineligible Activities of Subsidiaries of Bank Holding Companies Engaged in Underwriting and Dealing in Securities, 61 Federal Register 48,953 (1996); and Revenue Limit on Bank-Ineligible Activities of Subsidiaries of Bank Holding Companies Engaged in Underwriting and Dealing in Securities, 61 Federal Register 68,750 (1996) (collectively, "Modification Orders").
8 In light of the fact that Wachovia proposes to acquire Company as a going concern, the Board believes that allowing Company to calculate compliance with the revenue limitation on an annualized basis during the first year after consummation of the proposal and thereafter on a rolling quarterly average basis would be consistent with the Section 20 Orders and the Glass-Steagall Act. See U.S. Bancorp, 84 Federal Reserve Bulletin 483 (1998); Dauphin Deposit Corporation, 77 Federal Reserve Bulletin 672 (1991). Moreover, in view of the fact that Company is significantly larger than WCMI and will survive the merger with WCMI, the management structure of the proposed merged company, the activities of the merging companies and the proposed merged company, and the other aspects of this case, the Board believes the merger of WCMI and Company would not disqualify Company from calculating compliance with the revenue test in conformance with the annualized treatment described in this order. See KeyCorp, 84 Federal Reserve Bulletin 1075 (1998).
9 12 C.F.R. 225.200. Company may provide services that are necessary incidents to the proposed underwriting and dealing activities. Unless Company receives specific approval under section 4(c)(8) of the BHC Act to conduct the activities independently, any revenues from the incidental activities must be treated as ineligible revenues subject to the Board's revenue limitation.
10 See 12 C.F.R. 225.28(b)(1), (2), (3), (5), (6), (7), (8)(i) and (ii), (9)(i), and (14).
11 See Dresdner Bank AG, 84 Federal Reserve Bulletin 361 (1998); Meridian Bancorp, Inc., 80 Federal Reserve Bulletin 736 (1994).
12 12 U.S.C. §1843(c)(8).
13 See 12 C.F.R. 225.26.
14 Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and Governors Kelley, Meyer, Ferguson, and Gramlich.
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1999 Orders on banking applications